The Zhitong Finance app learned that Jason Hunter, head of technology strategy at J.P. Morgan Chase, warned on Monday that by next summer, the S&P 500 index will plummet by 23%, and the US recession will become a reality.
Hunter said that the stock market mistakenly digested expectations of a “soft landing” in the US economy, that is, the Fed successfully suppressed inflation without triggering a recession. But he said investors will soon realize that the outlook is bleaker than they thought, triggering a sell-off in the stock market.
Hunter said, “You tend to enter a bear market, and in the end, a bear market is often related to an economic downturn.” He pointed out that the current inversion of the yield curve is a reliable indicator of economic pain. “In reality, there is a high possibility that the economy will have a hard landing.”
The Federal Reserve has raised interest rates from nearly zero in the spring of last year to more than 5% now to curb inflation. Many stock investors are betting that the Fed will cut interest rates next year, thereby boosting asset prices and stimulating economic growth. However, they may be overly optimistic because the Fed is unlikely to relax monetary policy until the economy cools down.
“The US economy will have to stall,” Hunter said. “This is the reason why the Federal Reserve will be able to start easing monetary policy in the second half of next year.”
“The market will conduct an important instinctive check on whether this inertia will lead to a recession,” he continued. “The stock market should fall back.”
Hunter said that the benchmark S&P 500 index could fall to 3,500 points in the middle of next year, “retesting the low of 2022.” He pointed out that his signal algorithm has given a red light, implying that investors should reduce their stock positions and begin hedging. He added that in his opinion, cash and 2-year or 5-year US Treasury bonds are currently far safer than stocks.
On the positive side, Hunter believes the stock market may hit a new high in 2025, driven by interest rate cuts.
Wall Street strategists have mixed opinions about the future direction of the market. For example, Lori Calvasina, head of US equity strategy at Royal Bank of Canada, said on Monday that the S&P 500 index may hit a record high of 5,300 points next year. Stifel strategist Barry Bannister said investors should not expect the US stock market to rise sharply next year — or at least in the next decade.